Oil and power prices to match 2009 levels

Natural gas prices to fall on strength of steady inventories and new supplies

By Jeff Lewis

November 04, 2010

Canadians can look forward to low heating costs this winter thanks to a combination of lower natural gas prices and ample inventories. Natural gas prices are expected to average between US$3.50 per MMBtu and US$4.50 per MMBtu, according to the National Energy Board’s (NEB) latest winter outlook. Cold weather will be the main driver of fluctuating prices, but steady production brought on by the boom in shale gas and strong seasonal inventories are expected to keep prices down.

Daily North American natural gas production levels are expected to average 71 billion cubic feet, the NEB says. That includes daily Canadian production of 14 billion cubic feet. Declining reserves of the cleanest fossil fuel in the Gulf of Mexico and the Western Canadian Sedimentary Basin will be offset by growing supplies from the Eastern U.S., most notably from the Marcellus Shale, the NEB says.

The average price for crude oil will hover between US$75 and US$85 per barrel, the NEB predicts. Demand in 2009 was driven chiefly by growth in emerging-market economies and stimulus spending in developed countries. Look for a current supply cushion to disappear as production from non-OPEC countries including Canada, the U.S., Brazil, Colombia and Russia levels off in 2011.

Demand for power is expected to grow but remain below 2008 levels. The shift away from coal-fired electricity continues apace. Ontario and Alberta have both decommissioned coal-fired generation units in recent months. Calgary-based TransAlta Corp. shut down Wabaman west of Edmonton last spring, while in October, Ontario retired some 2,000 megawatts of coal units as part of a provincial plan to phase-out coal entirely by 2014.

Also on the power front, natural gas plants and wind turbines are on the upswing; they represent the majority of new generation supply in Canada, according to the NEB. Fully 1,500 MW of new wind energy is scheduled to come online before the end of 2011, bringing total Canadian wind capacity to 5,000 MW. Whether or not turbine installations continue at such a clip when the federal ecoEnergy program expires in March 2011 remains to be seen.